Monday Mayhem: Ukraine-Russia tension, oil prices send Sensex 1700 pts down

The Nifty index is now below its 200-DMA level and is near the support zone of 16,800. Severe corrections may happen if it slips below this level

Domestic equities crumbled under the global meltdown on Monday as tensions flared up between Ukraine and Russia. The geopolitical breakdown between the two nations also had a bearing on oil prices, which are now above $95 per barrel-mark.

The benchmark S&P BSE Sensex plummeted over 1,800 points intra-day, while the Nifty50 slipped below the 16,850-mark, clocking their biggest intra-day decline since November 26, 2021.

They, eventually, ended at 56,406 and 16,843 levels, down 1,747 points and 532 points, respectively.

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The market breadth was awfully bearish with s19 stocks declining against one advancing stock on the BSE. On the NSE, the advance to decline ratio stood at 1:13. Volatility index, India VIX, meanwhile, surged 23 per cent.

According to analysts, the short-term outlook for the markets is turning increasingly negative and soaring oil prices can further dampen the sentiment for India.

"Crude at an eight-year high is a major macro concern. If it remains at levels of $95 for an extended period of time, the RBI will be forced to revise upwards its 4.5 per cent CPI inflation projection for FY23. Continuation of the accommodative monetary stance, too, will be difficult," said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

Let's look at the reasons for today’s market fall:

Ukraine-Russia clash

Russia's attempt to foil Ukraine's membership attempt in NATO is taking an ugly turn with countries such as the US and UK signaling at a "possible war".

While Russia has denied any plans to invade Ukraine despite the build-up of some 130,000 soldiers on Ukraine's borders, Western nations have warned that Russia is preparing for military action, with the US saying Moscow could begin with aerial bombardments "at any time".

Amid this, more than a dozen countries, including Australia, Italy, Israel, the Netherlands, South Korea, and Japan, have urged their citizens to leave Ukraine.

Oil on the boil

Tensions between the two nations also lifted oil prices to their highest levels in more than seven years on fears that a possible invasion of Ukraine by Russia could trigger sanctions from US and Europe and disrupt energy exports from the world's top producer.

Brent crude futures were at $95.57 a barrel, up $1.13 or 1.2 per cent at 9:50 AM, after earlier hitting an intraday high of $95.91. US West Texas Intermediate (WTI) crude rose 1.6 per cent to $94.4 a barrel, hovering near a session-high of $94.92. READ MORE

"We expect crude oil prices to remain volatile this week amid volatility in the dollar index and Russia-Ukraine tensions. WTI could hold $88 a barrel and Brent could hold $90 a barrel in the international markets. Crude oil is having support at $92.00–90.50 and resistance is at $95.50–96.80 in today's session," said Prashanth Tapse, Vice President (Research) at Mehta Equities.

Inflation worries

Oil's surge toward $100 a barrel for the first time since 2014 is threatening to further dent growth prospects and drive-up inflation. That's a worrying combination for global central banks as they seek to contain the strongest price pressures in decades without derailing recoveries from the pandemic.

Analysts caution much of the world will take a hit as companies and consumers find their bills rising and spending power squeezed by costlier food, transportation and heating.

India is due to report its retail and wholesale inflation data for January later in the day.

FII selling

Foreign investors are dumping Indian equities as interest rate hikes by developed countries, combined with high inflation, oil price rise, and profit booking after a one-way rally, dampen outlook for emerging markets.

So far in the current calendar year, FPIs have offloaded Indian securities worth Rs 43,461 crore, including Rs 43,383 crore in equities.

That said, Analysts say FIIs may choose to remain on the sidelines for now, and come back in a big way in the later part of 2022 when the markets face less headwinds. READ ABOUT IT HERE

Technical outlook

According to Rupak De, senior technical analyst at LKP Securities, the Nifty index has broken the rising trend line on the daily chart and the physiological support as it drifted down below the 17,000-mark.

"As a result, Nifty has reached to its 200-DMA, which is considered as the line of polarity for long term trend. Going forward, Nifty may remain very volatile and may find support at 16,800. Below 16,800, severe corrections may continue. On the higher end, resistance is seen at 17,100," he added.